Saturday, July 11, 2009

How much money is YouTube not making?

I previously mentioned that YouTube is losing money. This was based mostly on having run across Credit Suisse's estimate of $470 million in losses. John Paczkowski of the Digital Daily disputes this, saying that Credit Suisse vastly overestimated YouTube's infrastructure costs and that Google has no incentive to correct this impression since doing so would lead its partners to demand a bigger share of revenue.

The argument seems plausible. One of Google's competitive advantages is its ability to buy bandwidth in bulk and its expertise in hosting hordes of servers cheaply. So, taking this into account, the picture changes considerably: YouTube is probably losing more like $170 million (the article says $174 million, but I'm not convinced I see three significant digits).

Now, if I had just told you that YouTube was losing $170 million, that might have sounded bad. But given that they might have been losing $470 million but it turns out it's only $170 million, surely that's not so bad, right? Kind of like getting a $470 pair of shoes for only $170. Such a deal, no?

The key question here is whether Google can afford it and if so, whether they want to. As far as I can tell, the answer to both is yes. With net income of around $4 billion, $170 million looks relatively small. $470 million would be harder to ignore.

1 comment:

David Hull said...

Note to self: looks like Google made the right by on this one.